DavidThe thought of buying a new vehicle can be an intriguing one. If you’ve decided that it’s time to invest in one, then you need to figure out how much vehicle you can afford. Fortunately, we’re going to share with you seven of our best tips for determining how much vehicle you can afford.
1- Determine the Full Picture Price
When shopping for a new vehicle, it can be easy to get caught up on the sticker price. While this is a good starting point, you need to remember that there are going to be other fees that you’ll need to pay or have wrapped into your total loan amount. These other items include sales tax, transfer tax, title fees, extended warranties, and registration fees. There are various online calculators that can help you to ballpark what these fees may be for a specific price of a car so that you know what amount you’re really talking about.
2- Assess Your Budget
Next, you want to take a look at your existing budget. See how much money you have to spend on vehicle-related expenses each month. Realize that this amount shouldn’t be equal to your monthly car payment. Rather, you also need to figure in your fuel bill, maintenance costs, insurance premiums, and so forth. You’ll want to take the total associated costs of owning your vehicle and deduct that from your monthly income, which you can spend on both these costs and your car payment. This will give you an estimated car payment amount.
3- Choose a Loan Term
The term of your loan is essentially how long you have to pay back on it. A loan term of 60 months means that you’ll be paying monthly car loan payments for 5 years. In general, the longer your loan term, the lower your monthly payment will be. However, the more interest you’re likely to pay over time. Finding the appropriate balance to meet your needs is a necessity when you first think about purchasing a new vehicle with an auto loan.
4- Get Estimated Interest Rates
Before you go shopping, you should check with local auto loan lenders to determine what interest rates they’re offering. Many will be able to prequalify you for an auto loan with a guaranteed interest rate if you take out a loan within 30 to 90 days of their offer. This will give you a good estimate of how much your loan payment will be.
5- Pay With a Down Payment
When you purchase a new vehicle, you’ll be given the option to put a down payment on the loan. This is a set amount of money that you’ll pay your auto loan lender upfront when they issue the loan. When you put a large down payment on a vehicle, you can enjoy lower monthly payments and a lower interest rate.
6- Are You Trading in a Vehicle?
If you have an existing vehicle that you don’t plan on keeping when you get the new one, you need to decide if you’re going to trade it in at the dealership. While the dealer will likely offer you a lower amount of money than if you sold your vehicle on the private market, it will be a much quicker process. You can use that trade-in value to help reduce the overall price of your new vehicle.
7- Choose a Firm Limit
After you’ve used the tips above to assess your financial situation and determine how much money you can safely spend on a vehicle, it’s time to choose your top limit. This is the most money that you’ll spend on a vehicle. It’s important to set this amount lower than the total amount you calculated. This helps to provide a safety cushion. Once you decide on a top limit, stand firm and don’t go over it.